Consumer advocates have raised concern about the debt-collection practices of banks and credit-card providers as an independent review into the banking code of practice prepares to report on this and other issues.

The review will address, among other things, the code's existing provisions on financial hardship and debt collection.

The Consumer Action Law Centre in Victoria has raised concern about National Australia Bank, for example, "selling" credit-card debt to a debt collector the centre says has a reputation with community workers and financial counsellors of being unwilling to negotiate repayment plans.

In a recent case, a NAB client who had lost his job and fallen behind on payments had his credit-card debt sold to this debt collector, which insisted on full repayment.

Consumer Action's deputy director of policy and campaigns, Gerard Brody, says: "[The client] did the right thing by trying to negotiate to repay the debt he owed in amounts he could afford."

Brody says the man even visited a financial counsellor who tried to negotiate on his behalf but the debt collector ignored the approach.

The client finally went to the Victorian Civil and Administrative Tribunal for an order that the debt collector accept a repayment arrangement on the grounds of his genuine financial hardship.

The parties reached a settlement about a fortnight ago, with a repayment plan to be put in place.

Brody says banks have a legal obligation under the banking code of practice to help customers in financial trouble. "[The banks] shouldn't be able to duck this obligation by selling off debt and failing to take responsibility for the conduct of the debt collector," he says.

Selling old or bad debts - rather than employing debt agencies to collect it on their behalf - is now common practice among banks, Brody says.

Asked to respond, a NAB spokeswoman told Money the bank did not comment on internal procedures such as the process involved in deciding which debts were sold to debt-collection agencies. She said, however, that a number of factors were taken into consideration before taking this step.

Asked how it viewed its responsibility for the customer's experience from that point on, she said NAB had a code of conduct "to which we endeavour to ensure the collector adheres".

NAB's dispute-resolution process is still open to customers even if a debt is passed to a third party, she said.

"NAB invests an enormous amount of time and effort in gaining new customers and it's in our and our customers' interest to keep those relationships," she said. As part of what the spokeswoman called a "relationship based" collections approach, the bank has a team to assist customers facing genuine hardship, with a view to helping them get back on their feet.

"NAB does recognise that people's personal circumstances change and some customers will face genuine hardship, such as loss of employment or illness," the spokeswoman said. "We have a team of people who work with customers one on one to help them get through these situations."

Brody of Consumer Action says the legal obligation of banks when a debt has been sold is a complicated question. "But my understanding is that when [a collector] buys a debt they buy the right around the collection of that money and all the other contract terms and conditions remain with the bank," he says.

"If you have rights against a bank under the original contract - that they should treat you in a certain way - you could still make those claims against the bank.

"My understanding is that the consumer still has some rights against the bank."

The independent review of the banking code of practice is scheduled to hand its report to the Australian Bankers' Association at the end of this month. An issues paper released as the review got under way includes an interim recommendation that its provision on financial hardship include a reference to banks working with customers "and their financial counsellors or representatives" in the development of repayment plans.

It also suggests the code point to protocols for identifying and managing customers experiencing financial difficulty, to be developed by the ABA in consultation with consumer representatives, regulators and banks.

In regard to debt collection, the issues paper notes consumer advocates' concern that debt collectors are not bound by the banking code of practice but also the ABA's view that legislation such as the Trade Practices Act regulates their practices.

The paper includes an interim recommendation that the code be amended to include reference to the latest debt collection guidelines.

The review of financial hardship and debt collection comes at a time when a survey by credit bureau Veda Advantage has found 79 per cent of respondents with debt are worried about their ability to repay debt in the next 12 months.